Bad Idea: Mandating Sick Pay

In his State of the Union speech, the president emphasized the plight of 43 million American workers whose employee benefits do not include paid sick leave. Presumably, many of them feel they cannot afford to take a sick day to convalesce after an illness or to care for a sick child. However, the President’s solution was a bad one: he proposed to force employers to provide up to seven days of paid sick leave to workers (and their families) annually. Imposing another costly employer mandate is a bad idea. Instead, the president should have proposed expanding health savings accounts (HSAs), allowing workers to replace income lost to sick days.

Bad Idea: Mandating Sick Pay. To some, mandating paid sick days may sound benevolent, but it would hurt the people it’s intended to help. One problem with the president’s proposal is that it’s unrealistically generous. Of the 100 million jobs that provide some paid sick leave, most likely don’t provide seven days annually. Obama also appears ignorant of the fact that his own health adviser, Jonathan Gruber, published academic research back in the 1990s showing workers themselves wind up paying the cost of mandatory benefits through lower wages. Thus, if employers are forced to provide seven paid sick days for each worker every year, employers will adjust workers’ pay downward to compensate for the cost. This would inhibit pay raises, and it would impact paid vacation days.

What determines who gets paid sick leave and who doesn’t? As the previous paragraph suggests, to a degree it’s a function of workers’ preferences. Some workers willing accept jobs with lower take-home pay because the job provides fringe benefits they prefer over higher cash wages. This often includes sick pay, when workers accept jobs with lower cash wages because they value the knowledge they will be paid for the few days each year they feel under the weather and are unable to report to work. But this is a bargain not all workers feel they can afford to make. Other workers take jobs with higher cash wages despite a lack of fringe benefits because they prefer higher pay.

Understandably, small employers and jobs with a disproportionate number of low-income workers tend to be the ones who don’t offer (non-cash) employee benefits. When money is tight, a job that pays higher cash wages but doesn’t offer benefits may be preferable to low-income workers on a tight budget.

Mandating paid sick leave could even harm the employment prospects of workers most likely to stay home and care for a sick child. Gruber has also published research that found specific groups who are the intended beneficiaries of mandated benefits may suffer discrimination by employers hoping to avoid the costly mandate.

What is the solution? The president should have called for expanding Health Savings Accounts (HSAs) to all workers, allowing them to set aside funds for all sorts of medical needs. In addition, the president could have also proposed allowing workers to use HSAs to replace income lost to sick days.